Exercise-2 (Net cash provided/used by investing activities)

Exercise-2(a):

The Big and Fast company provides the following information about its activities in the year 2016.

• Marketable securities purchased: $45,000
• Treasury stock purchased: $56,000
• Inventory purchased: $412,000
• Land sold: $95,000
• Machinery purchased: $278,000
• Common stock issued: $168,000

Required: Compute net cash provided/used by investing activities to be reported in the statement of cash flows of Big and Fast company.

Solution:

Note: The following activities have not been included in the above computation because these are not investing activities.

1. Purchase of treasury stock – a financing activity.
2. Purchase of inventory – an operating activity.
3. Issuance of common stock – a financing activity.

Exercise-2(b):

The P&G company provides the following information for the year 2016:

1. Old plant asset sold for $164,000 and the gain on such sale was of $5,000.
2. Treasury stock purchased for $42,000.
3. Investment purchased for $25,000.
4. A new plant asset purchased for $115,000.
5. Common stock issued for $375,000

Required: Calculate net cash provided/used by investing activites for P&G company using above information.

Solution:

Notes:

1. The sale proceeds of old plant asset of $164,000 include gain of $5,000.
2. Purchase of treasury stock and the issuance of common stock are not investing activities.